Tuesday, July 28, 2009

The Western Peril

Recently I've been reading the Mises Daily email.

The Mises Daily expresses the view called Austrian economics. (I subscribed to the Daily to learn a bit about that branch of the subject.) The Austrian school is highly concerned about the possibility of inflation. The school objects to government interference in the economy, favoring Laissez-faire. And, judging by the Daily, they're an opinionated bunch. That's what I've picked up so far.

But then the 7-21-09 post by Thomas J. DiLorenzo caught my eye:

I recently received in the mail the 2008 Annual Report of the Federal Reserve Bank of Minneapolis. The title of the report is "The Current Economic Crisis: What Should We Learn from the Great Depressions of the 20th Century?"

Now that's my kind of report: reputable source, fascinating topic. So I took a gander at the Fed report. The thing that most struck me was... Well, here's how it opens:

The current financial crisis has prompted these questions: Could the world economy enter a great depression like that of the 1930s? If so, what can governments do to avoid it?

Really??? Now they're gonna think about the possibility of economic depression? Now that it's upon us? Now that all sorts of bizarre policies to skirt depression are being put to the test? What have they been doing for the past 30 years? The fact of the matter is, in observations like this I find an explanation for how things went so terribly wrong: Incompetence, dogma, and ego. But I wander.

Saturday, July 25, 2009

How to Avoid the Inflation

Dated 18 May 09

Here's an item I was putting together back before I started this blog. It was for my Google-site. But this was just when I was starting to figure out the difference between a website and a blog. Anyway, I knew this post wasn't meant for the website and I just left it as litter on my desktop. 'Til I found it this morning.

Thursday, July 23, 2009

An Arthurian Future

Could you reiterate that again?

I commented on Aquinum's:

Okay. Say your proposal had been set up 20 or 30 years ago. Say it was in place and working....

But Vince batted that back to me:

Say your proposal had been set up 20 or 30 years ago.

Oh. Well, I put an answer together. A satisfying answer. (You know how it is.) Anyway, I thought my economic proposal ought to be on this blog. So, here it is:

Wednesday, July 8, 2009

It's not a Stimulus

It's not a Stimulus


Tuesday, July 7, 2009

Time is Money

Fiddling while Rome burns

7 July 09 - Today's "Alerts" from Seeking Alpha include this gem:

Krugman vs. Bartlett: A Tale of Two Charts by Kurt Brouwer

The post is a mish-mosh of Brouwer-quoting-Krugman-quoting-Bartlett, with some Brouwer-quoting-Bartlett in the mix. And now I'm skimming that soup.

Brouwer opens with an interesting observation:

Despite the fact that most of the existing economic stimulus program has not yet been implemented, a Nobel laureate economist and New York Times columnist and blogger has been advocating a second government stimulus program.

Yeah, the existing stimulus plan has hardly been implemented at all. As of today -- 140 days since President Obama signed the stimulus bill into law -- only about 7.2% of the $787B has been allocated.

(On the little "Stimulus Watch" gadget my son Jerry created for me, we say 7.2% has been spent. Perhaps that's not quite right. Our number comes from VP Joe Biden's recovery.gov site, where he lists it as the total "paid out." However, that site identifies 10 October '09 as the day that "recipient reporting begins." So I'm thinking the "paid out" number counts money distributed from the big bureaucracy in D.C. to smaller bureaucracies in D.C. and elsewhere, government offices that have been drawing up lists of "shovel-ready" projects. I'm doubting that any of that 7.2% has found its way to people with shovels.)

So yeah, as Brauwer says, it's a "fact that most of the existing economic stimulus program has not yet been implemented." And it is obvious to me that this could be the reason we've seen little effect from the stimulus. Brauwer, however, completely misses the obvious.

He has flies in his eyes: Paul Krugman's comments on Bruce Bartlett's article.

Bartlett says Obama was "much too optimistic" about effects of the stimulus package. He says Obama's economists expected results "almost immediately." And Krugman says "that's totally false." Krugman's evidence is a graph you've likely seen before, showing projected unemployment with, and without, the stimulus.

Chart showing predicted effect of $787B stimulus on unemployment

Now what I see in that graph is a reduction of unemployment projected to begin in the Second Quarter of 2009. I would call that an almost immediate effect of First Quarter activity. So I would say Krugman's evidence shows Bartlett's statement to be true, not false.

But what do I know. Brouwer says "Krugman is quibbling." And then he says, "Wouldn’t it have made sense for Krugman to update the chart to see how much of a positive effect the stimulus program has had?"

Well, no. Krugman didn't post the chart so we could see the most current situation. He posted the chart to prove Bartlett wrong. (It didn't work, but that's another matter.) Looks to me like Brouwer is IM-ing Krugman.

Brauwer has his own agenda. He wants to see the most current results of the stimulus. He wants to see the most current unemployment situation. So, does it make sense for him to post the update?

Well, Idunno. Because it is, as Brauwer says, "fact that most of the existing economic stimulus program has not yet been implemented." But then it might be interesting to look at the results of not implementing the stimulus.

Chart showing increase of unemployment

So, Brauwer presents his update. It shows unemployment skyrocketing. Obviously, this recession or depression is a lot worse than we thought, worse than Obama thought, worse than the January predictions.

And then Brauwer says, "At this point, it is clear that the economic stimulus program has not delivered as promised." And he quotes Bartlett: "Another stimulus would be a grave mistake. The first one was justified by extraordinary circumstances. But it must be given time to work. People should not allow their impatience to lead to the adoption of policies...."

Impatience? Give it time to work?? Really??? Unemployment is much worse than expected. Worse than we anticipated when Congress settled on the $787B number. The recession is worse than we thought, when we thought a $787B stimulus would fix it. So the $787B must be too small to fix this recession.

If a stimulus package is the answer, then it must be sufficient to address the problem or there is no bang for the buck, and the money is truly wasted.

The economic stimulus program has not delivered as promised? But how can Brauwer say this? After all, he points out "the fact that most of the existing economic stimulus program has not yet been implemented." So of course it hasn't delivered.

My God! The whole purpose of stimulus spending is to create an immediate surge of economic activity. Immediacy is the essence. One cannot wait while the economy declines further. For then, to achieve the equivalent effect, the surge must be even bigger.

Immediacy is the essence. Allow me to close, as Brauwer closes, by quoting Bruce Bartlett:

…just 11 per cent of the discretionary spending on highways, mass transit, energy efficiency and other programmes involving direct government purchases will have been spent by the end of this fiscal year. Even by the end of 2010 less than half the funds will have been disbursed and by the end of 2011 more than a quarter of the money will be unspent.

Monday, July 6, 2009

Debt and Equity

Like touching a snake

My friend Aquinum has written:

"Possessing physical dollars is like having equity in the economic output of the United States of America, and has no credit risk associated to it.... To summarize: physical paper money is equity. Bank deposit money is backed by debt...."

Paper money is equity. This is an astounding observation. Aquinum refers me to Unqualified Reservations for a technical definition of money-as-equity:

Any financial instrument is one of three things: a deed of ownership of some good (a title), a liability to fulfill some obligation, possibly contingent (a debt or option), or none of the above (equity). The dollar is equity....

Saturday, July 4, 2009

Always the Bing

This is totally off-topic (TOT) but some things can't be helped.

One of the great things about Seinfeld was that they often had two conversations going at once. Jerry and Elaine would be talking about something, and George would add something irrelevant. They would continue their conversation, and George would continue inserting his own, unrelated thoughts. It was funny because it caricatured a thing that happens all the time.